Two-FIFTHS of SMEs across the UK and Ireland struggle with customers not paying their invoices on time, according to the latest Close Brothers Business Barometer.
This in turn has a negative impact on cash flow, with time and money spent chasing payments instead of concentrating on growing their business.
In fact, over half (51pc) of respondents to the survey said they spend over 10 hours every month chasing for payment and 44pc are owed over €20,000 in unpaid invoices.
This in turn forces many companies to borrow from banks.
Stephen Hodges, chief executive of banking at Close Brothers, said SMEs are far too reliant on overdrafts and would be better off avoiding them altogether.
They should be using the assets of the business to access alternative sources of finance instead, Mr Hodges said.
"When SMEs think about raising money they automatically think about overdrafts. But overdrafts are a lousy way for SMEs to borrow money," he added.
"They may not get enough cash to buy the new vans or machine tools you need, and worst of all, their bank can pull the loan at a moment's notice, leaving them with little or no time to find the means to pay them back."
Mr Hodges, who oversees about £5bn in lending to around 27,000 small businesses in the UK, says that it is vital that business owners and entrepreneurs seriously think about other methods of finance, such as business angels, peer-to-peer lenders, or putting their balance sheet to work through invoice finance and asset-based lending.
"It is absolutely essential that SMEs are aware of the alternative sources of finance," Mr Hodges said.
"They need to make sure they are really well informed and up to speed. Things that might not have been available two or three years ago might well be available today. There are new sources of finance all the time," he added.
Mr Hodges said that many small firms did not realise how much they could borrow by using their existing assets.
"If they talk to specialist lenders they will be surprised at how much they can raise against existing assets in the business and new business that they are going to be generating in the future. There are always assets in a business."
He added: "SMEs need to unlock the value that is in their balance sheets. Plant and machinery, property, stock, accounts receivables - even future cash flows - can be put up as security for a loan."
Mr Hodges said business owners should be talking to experts who understand their industry instead of simply asking their bank for an overdraft.
"It makes a lot more sense to discuss a loan with a machine tooling expert who might have worked in your field - and will take the trouble to visit your business - rather than speak to a general purpose high street bank," he added.